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NONPROFITS STRUGGLE WITH GROWING RENTS

News for 01.03.19
01.03.19
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Nonprofits struggle with growing rents

Shared and coworking spaces, philanthropic shifts explored by foundations and nonprofits

By Anna Schuessler Daily Journal staff  /  Updated 

If growing anxiety over lease renewals and scoping ways to downsize are an emblem of an expensive real estate market squeezing Bay Area residents and businesses, the reality of rising space rents and prices is not lost on San Mateo County nonprofits fighting to remain in the communities they serve.

Already expected to keep space and staffing expenses low, nonprofits are facing an uphill battle when it comes to finding affordable office and program space in a market in which the asking square-foot price in downtown San Mateo surged to nearly $7.50 in November, according to a Colliers International report.

Operating programs in several facilities as far north as Daly City and as far south as Sunnyvale, the nonprofit Gatepath has had its fair share of stress revolving around lease renewals for the facilities it leases at market rate. In providing services to children and adults with special needs, the nonprofit requires thousands of square feet of space for programs ranging from preschool and therapy for young children to vocational training for adults, making proximity to its clients essential, explained Gatepath CEO Bryan Neider.

With a goal of expanding the number of preschools inclusive of children with developmental disabilities Gatepath operates, Neider has been hard-pressed to find spaces where the nonprofit’s programs can expand, let alone ensure it can afford rent for the spaces it currently occupies. Neider acknowledged the nonprofit is fortunate to receive a grant from the Sobrato Organization to rent space for its headquarters at the Sobrato Center for Nonprofits in Redwood Shores at a subsidized rate.
But he noted the nonprofit wasn’t so lucky when it had to close one of its locations in San Carlos where it offered adult programs after the landlord of the Industrial Road property increased rent by some 70 percent last year.

“It’s impossible to find space anywhere to accommodate a preschool with 100-plus kids, with a playground and all that is needed around that, that isn’t cost prohibitive,” he said.
Neider said most of the nonprofit’s leases are two to five years, and though some come with renewal options, not all of them do. How long Gatepath will be able to afford to stay in a space where clients have been receiving services depends in large part on the one-on-one relationships it is able to foster with its landlords, said Erin Montgomery, Gatepath’s vice president of human resources.

Montgomery said educating landlords on Gatepath’s mission and approach has been a key part of their lease negotiations, as has working with other nonprofits to see if they can share space with other groups when the nonprofit is not using its facilities, which is usually on nights and weekends.

“It always makes me very nervous when we have to go to market,” she said. “That’s just going to continue to be a challenge for us.”

Sobrato
Together with two other nonprofit centers in Milpitas and San Jose, the Sobrato Organization provides some 333,000 square feet of office space to a range of nonprofits that fall largely into the areas of human services, education and economic opportunity, said Mara Williams Low, program director for the Sobrato Family Foundation. Low said the Sobrato Organization opened its Milpitas facility in 2001 after several nonprofits requested the real estate developer contribute space to their causes.

She said the developer opened another nonprofit center in San Jose in 2008 and eventually expanded to the facility in Redwood Shores in 2011, when 22 nonprofits moved into the 121,000-square-foot campus where Gatepath is headquartered.
With the knowledge that nonprofits’ two largest expenses are staff and space, the Sobrato Organization has honed its approach to providing space for some 75 nonprofits at any given time within its three centers, said Low. By offering professional development and workshops on best practices at the three facilities, the Sobrato centers for nonprofits aim to provide resources all nonprofits need.

“It takes people, it takes resources in order to do this really intense social change work,” she said. “Our support in providing space is trying to take away one huge stress.”

High Demand
Though demand for space at the centers has been high, Low said it’s increased in recent years to the point where 200 to 300 organizations have submitted inquiries about openings, noting some 30 applications were submitted by nonprofits when three relatively small office spaces recently became available. She said the uptick in demand for space has made those administering the facilities more judicious in deciding how much to allocate to nonprofits, noting they have subdivided areas to make room for even more.

Equipped with a 75-seat main stage, classroom and studio, interest in renting space at the Dragon Theatre has also jumped in the some seven years since the venue has been in Redwood City, said Kimberly Wadycki, the Dragon Theatre’s managing director. Home to the Dragon Theatre Production Company, a nonprofit which offers professional theatre productions, Wadycki said it is also rented by nonprofits, nearby tech companies and individual artists looking for space for workshops, classes and performances.
Though Wadycki has also worked with tech and other for-profit companies in need of space for larger presentations, she knows from experience how hard rising rents have hit nonprofits and a wide array of artists, from circus performers to comedians.
By offering late-night comedy shows and space where artists can conduct auditions or performances at the theater, Wadycki is hoping the venue can offer individual artists a professional space where they can practice their art form and get exposure to audiences. She said offering space rentals has helped the theater make its own rent payments, noting that money from rentals has jumped to some 30 percent of the nonprofit’s revenue this year, up from some 10 percent in prior years.

With a growing number of nonprofits facing rising rents, Wadycki said she has seen better communication among nonprofits in recent years about how they can collaborate or share space. She noted a partnership between the Dragon Theatre and the Central Peninsula Church has allowed the church to offer programs at the theater on Sunday mornings when services are held at the Fox Theatre, a time Wadycki said the Dragon Theatre previously went unused since most shows and practices take place in the afternoons and evenings.

But she also noted collaborations aren’t always the easiest solution to nonprofits’ struggle with constrained space given the wide array of needs for county nonprofits.
“There’s a lot of people in this boat right now and there’s a lot of talk about ‘how do we work together?’” she said. “It’s tricky, too, because every nonprofit has a very specific mission of what they do and what they provide.”

Growing Alliance
As executive director of Thrive Alliance of Nonprofits in San Mateo County, Georgia Antonopoulos has seen an increasing number of nonprofit leaders coming to the network her organization has fostered, seeking guidance on how to navigate lease renewals and strategies for expanding their operations in an unforgiving real estate market. Though the issue affects almost every one of Thrive Alliance’s 200 members in some way, Antonopoulos said the conversation on real estate has blossomed in the organization’s arts and culture action area.

She said the uptick in requests for help on the space issue has fueled an interest in raising awareness among philanthropic foundations and corporate partners about how the cost of operating a nonprofit in the region is increasing and what types of support are most beneficial to nonprofits providing services in the county. Antonopoulos added including nonprofit needs within discussions of new developments going up in the county as well as at the forefront in local and state policy landscape could also help increase the number of affordable spaces in the county.

“We often think about squeezing nonprofits and getting the most out of them and I think there’s the flip side of that conversation,” she said. “It’s been a struggle for arts organizations and oftentimes the solutions are really relationship-based and one-off.”

Scoping Solutions
To explore ways to scale some of the solutions nonprofits have had success with, Antonopoulos has also joined conversations held across the Bay Area about the same issue, such as the one held through the Nonprofit Displacement Project working group hosted by the San Francisco-based Northern California Grantmakers organization. As a regional association for philanthropy, Northern California Grantmakers has been focused on bringing philanthropists and foundations together with public sector and nonprofit organizations to scope solutions to issues like rising rent, said Sarah Frankfurth, collaborative philanthropy manager for the organization.

In an effort to understand the needs for nonprofits across the Bay Area, Northern California Grantmakers has surveyed hundreds of nonprofits in recent years to understand their biggest challenges, finding many nonprofit leaders who signed leases during the recession are facing rents that are double or triple of what they were paying for their space as they negotiate lease renewals, said Frankfurth. In forming a working group with organizations like Thrive Alliance, the Northern California Community Loan Fund and the East Bay Asian Local Development Corporation, the organization is hoping to curb nonprofit displacement with workshops aimed at helping nonprofit leaders prepare for negotiations or purchases of real estate or an online database of spaces available to nonprofits, among other strategies.

“It’s really disruptive for the clients that they’re seeing and as well as for the organization every time they have to move,” said Frankfurth. “With the Bay Area communities facing so much pressure from the housing crisis … if they lose organizations that are serving the communities, it can further destabilize these communities and lead to more displacement.”

Carving Out Space
Among the solutions nonprofits supported was an effort to carve out space for nonprofits within the growing stock of coworking spaces or business centers where coworking space is offered, said Frankfurth. Spearheaded by the All Good Work Foundation and funded by the Sobrato Organization, the Knight Foundation and the Heising-Simons Foundation, the effort to work with independent coworking operations to see if they can donate space in coworking spaces to nonprofits has been a focus in recent months for Amy Feldman, program director for Silicon Valley at All Good Work Foundation.

Founded in 2016 in New York City, the All Good Work Foundation aims to assist nonprofits struggling with operational costs in high-rent areas like New York City and the Bay Area, said Feldman, who has been reaching out to coworking spaces in Santa Clara and San Mateo counties since August to collect more than 30 seats at coworking spaces across both counties.

Whether they are established nonprofits struggling to hold onto space in a challenging real estate environment or new organizations aiming to expand their services, the option of renting a desk or two or a conference room for board meetings may be just outside the bounds of what is affordable for nonprofits, said Feldman, who noted a desk at a Bay Area coworking operation averages about $350 a month. Having secured 10 seats at four locations in San Mateo County, Feldman is hoping to provide nonprofits with a secure spot they can work from and either continue providing the services they have been offering or expand to other area where services are needed in a cost-effective way.

“The whole point is to give the nonprofit that stability to stay in that space for a while,” she said. “There’s one less thing to worry about so they can get the job done and help with the community.”

Partnerships
Eager to fill the desks at the coworking and child care space she opened earlier this year, San Mateo resident Katie Carlin looked forward to dedicating at least two seats to nonprofits through the All Good Work Foundation, giving working parents who may not be able to afford child care or a dedicated working space a chance to pursue their professional and personal goals. Dubbed the Garden by Equal Play, the 6,100 square feet she has to work with at 11 N. Ellsworth Ave. offers 1,400 square feet of child care space, open coworking space, private offices, common areas and a lounge for nursing mothers a short walk from San Mateo’s downtown Caltrain station.

Carlin said she is currently charging $350 a month for membership at the Garden by Equal Play plus $20 an hour for child care to make her business model work, but said she realized the rate might not be affordable at all income levels.

“Mainly we are interested in helping working families at all levels of income to be professionally ambitious and happily connected as parents,” she said. “Partnering with All Good Work allows us to extend dedicated seats to people who might not necessarily be able to afford our services but are … doing good work in our community.”

With plans to offer workshops and professional development opportunities to members of the Garden by Equal Play, Carlin said she is looking forward to including nonprofit members in the mix of groups to participate in future programs offered at her coworking space.

Critical Work
While Frankfurth acknowledged the complexities of scoping solutions for such a diverse group of organizations, she also emphasized the importance of keeping nonprofits in the communities they serve, noting they are not only service providers but also employers and cultural institutions She noted they are not immune to the region’s housing crisis, which has forced many employees out of the areas where they work and nonprofit leaders to consider paying fewer employees more to retain them, further putting a strain on the services they provide.

“I think it’s just it’s a really tough time for nonprofits on a lot of fronts and it’s hitting them really hard in their budgets,” she said. “Finding ways that we can support and sustain them and keep them here and keep them thriving is really critical to do.”


anna@smdailyjournal.com
(650) 344-5200 ext. 106